If you’re struggling paying off your home loan, check out these helpful tips:
1. Refinance to a lower interest rate.
If you plan to dwell in your home for at least 3 more years, and your loan is $100,000 or more with an interest rate of 5 per cent or higher, ask your loan issuer for the most favourable refinancing rate. Compare this rate with rates from banks which you already have accounts with. You could also work with an independent mortgage broker to find the best rate. Reducing your interest rate from 0.75% to 1% is already a big deal.
2. Refinance to shorten the time frame of your home loan.
Refinancing, a 35-year, fixed rate home loan to a 20- or 15-year loan for example is becoming very popular. The low rates nowadays allow you to do so, while keeping your monthly payment a little close to the current amount. For instance, you’ve been making repayments for a 30-year, 6 per cent fixed rate loan of $200,000 for five years; if you refinance to a 15-year, 2.87% fixed rate loan, your payments will increase by only $80 (or less) per month. And you would be able to pay off your loan 10 years earlier, establish equity a lot faster, and save more than $100,000 in interest!
3. Make a lump-sum payment.
If you’ve received an inheritance, a tax refund, or gained a huge amount of money in other ways, use a portion or all of this amount to your principal balance. Making a lump-sum payment is one of the best ways you can use to reduce or eliminate debt, because you are not required to make a higher payment each month. Making a one-time $5,000 payment on a 30-year, 4.5% fixed rate home loan of $225,000 for example, can save you more than $13,000 in interest and reduce your payment term by 15 months. Contact your home loan issuer to verify if your loan does not have pre-payment penalty. If your home loan has such, you could be charged with a fee, often 1% of the loan’s amount.
4. Round up your payment.
However little the amount — even if it’s only $20-$15 every month — you pay for your principal, this small amount will help you save in interest. For instance, you pay $900 each month, if you round it up to $1,000 by adding in $100, you will be able to pay off your home loan more than two years early. This is a good strategy to use if you don’t have a relatively huge amount of cash, or if you already have refinanced your home loan or you do not qualify for refinancing.
If you wish to get free advice on home loans or other financial concerns, you can visit CCLSWA by checking out the given link.